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- Arvind's Newsletter- Weekend edition
This issue focusing on a number of stories linked to Cold War 2.0 , which has started between USA and China, as well as few others. This (first) weekend edition has 3 short reads and 2 long reads. Click on the top right to read this edition in online mode.
1. One of the fallouts of the cold war as mentioned above, aggravated by China’s zero covid strategy, was that companies which were significantly dependent on China for manufacturing of its products like Apple looked to reduce dependence by diversifying part of manufacturing to other markets like India (iphones), Vietnam (ipads) and Thailand (Macbooks)-China plus one strategy.
Apple Inc. assembled more than $7 billion of iPhones in India last fiscal year, tripling production in the world’s fastest-growing smartphone arena after accelerating a move beyond China.
The US company now makes almost 7% of its iPhones in India through expanding partners from Foxconn Technology Group to Pegatron Corp., people familiar with the matter said. That’s a significant leap for India, which accounted for an estimated 1% of the world’s iPhones in 2021.
Of the total production, Apple exported $5 billion of iPhones in the year ended March 2023, nearly four times as much as the previous period, the people said. Apple will likely try to manufacture the next iPhones in India at the same time as in China, sometime in the fall of 2023. If so, that will be the first time that iPhone assembly begins concurrently in the two countries. And if the aggressive expansion of its suppliers continues, Apple could assemble a quarter of all its iPhones in India by 2025.
Nearly seven years after Tim Cook first visited India as CEO of Apple, he reportedly plans to return next week for a headline occasion: Opening the country’s first two Apple stores.
The first store should debut on Tuesday in Mumbai, with the second opening Thursday in New Delhi.
2.While India’s Production Linked Incentive (PLI) scheme for smartphones is doing well Vedanta-Foxconn's chip making ambitions have hit a speed bump
The Vedanta-Foxconn semiconductor consortium’s discussions with Dutch multinational STMicroelectronics for inducting the European company as a technology partner have got stuck due to lack of agreement on finer details of technology transfer, the duration of the partnership and the funds to be invested by each company. Entry into the semiconductor business is difficult as it involves significant upfront capital investment and there are few potential global technology partners. Also countries which have built a successful semiconductor local champions like Taiwan, Korea and to lesser extent China have provided significant subsidies, incentives and low cost funding over multiple years. Timing is also not good as USA and Europe are also looking to invest and scale up local manufacturing of semiconductors. (Read next article from FT to understand the extent of the challenge for India’s fab manufacturing)
Lets hope at least one of players looking manufacture semiconductors in India successful
3.Can Intel, one time world leader in semiconductor manufacturing, bounce back? Long Read in Financial Times will help throw light on the Chip War.
It was nearly a decade ago when Intel, then the undisputed leader in global semiconductor manufacturing, made a fateful decision.
A new technology, extreme lithography, was offering a way to pack more computing power on to the silicon wafers from which tiny chips, essential for widely used products like smartphones and PCs, are cut.
Using light to etch complicated integrated circuits, EUV promised an unparalleled degree of miniaturisation, but Intel executives believed it would take years for the method to become practical. Instead, they stuck with older manufacturing techniques for their next generation of chips.
This turned out to be a historic mistake, one with consequences that are being felt at a time when the US has put advanced chipmaking at the centre of its national industrial policy.
Taiwan Semiconductor Manufacturing Company, which adopted EUV in 2019, has leapfrogged Intel to become the world’s most advanced chip manufacturer, closely followed by Samsung. Along with other slips, the judgment call has left Intel — and the US — scrambling to catch up.
Intel is today at another crucial juncture. If, as planned, the company finally produces chips made with EUV in large volume later this year, it will be an important step on the road back. Nowhere will progress be watched more anxiously than in Washington, where the Biden administration is facing an imminent decision about how much financial backing to throw behind the company.
Last year’s US Chips Act committed $52bn in direct subsidies to support semiconductor manufacturing and boost research and development, along with an estimated $24bn worth of tax credits over the next eight years. The law was designed to reverse a slide that has taken the US share of chip production to 12 per cent, from 37 per cent in 1990.
The centrepiece of that plan is to bring leading-edge manufacturing back to the US. For better or worse, that leaves Washington with little choice but to bet heavily on Intel, despite it being the laggard in one of the tech world’s most important races.
Yet falling behind in advanced chip production is not the only problem hanging over Intel. Big shifts in its customers’ needs — such as the rise of artificial intelligence — are threatening to sideline its traditional PC and server chips. Its attempt to go into direct competition with TSMC by becoming a so-called chip foundry, manufacturing chips on behalf of other companies, represents the biggest change to its business since it abandoned its original memory chips for processors nearly 40 years ago.
To make things even harder, a yawning financial hole has opened up under the company at just the moment it is trying to make up for years of under-investment with a surge in capital spending. The depth of the reversal, which the company says is caused by a temporary inventory correction, shocked Wall Street in January, when Intel warned its revenue would tumble 40 per cent in the first three months of this year.
The setbacks mean that a central piece of US industrial policy is now riding on one of the most difficult and complex tech turnarounds ever attempted. As the US Department of Commerce begins to weigh how to distribute the Chips Act subsidies, deciding how fiercely to back Intel will be a central question.
Even if subsidies help to make up for some of the higher construction costs in the US, Intel’s plants will still face much higher operating costs than its Asian rivals, he adds. At the same time, rival chip subsidies in other countries also mean that even if the US halts the relative decline of its chip manufacturing base, it will struggle to win back global share.
The extent of Intel’s woes has spooked investors. Despite rebounding 22 per cent this year, its stock price has halved in the past two years. In the same period, the Philadelphia semiconductor index, a measure of the broader health of the industry, has only fallen 2 per cent.
Intel’s failure to keep its lead in manufacturing technology has been at the centre of its problems. For half a century after its co-founder Gordon Moore famously predicted in 1965 that the number of transistors on a chip would rise exponentially, Intel maintained a roughly two-year advantage over rivals.
After 2014, things started to go awry. The planned “shrink” to chips with features only 10 nanometres wide was thrown off course by the complex manufacturing steps put in place to get round the lack of EUV. Further delays mean its upcoming “node”, using a 7nm process that has been renamed Intel 4, will be roughly five years late — assuming the company succeeds in getting it into production later this year.
In less than a decade, Intel has slipped from being one generation ahead of its rivals in the latest chip technology to being one generation behind. Comparable chips from TSMC, using a process known as 5nm (confusingly, the actual sizes have diverged from the naming systems used to identify them) went into volume production in 2020. As a result, the latest products from rivals AMD and Nvidia — companies that design chips and outsource them to TSMC to be manufactured — have achieved higher levels of performance and eaten into Intel’s market.
According to Kelleher, the Irish-born former head of manufacturing who was put in charge of Intel’s technology development more than two years ago, turning Intel around will require nothing less than a cultural transformation. One of her first steps was to take on the “not invented here” mentality at a company where success had bred an insular approach to engineering.
“Because we were in a leadership position, we weren’t as open to the industry,” she says. “We don’t need to invent everything going forward ourselves.” In one big break with the past, Kelleher brought Intel’s chip design processes in line with industry standards, enabling it to use the same design automation technology from outside suppliers as other chip producers.
To make Intel less dependent on the kind of risky leaps that hurt its move to 10nm, Kelleher adopted what she calls an “incremental and modular” approach. That means some parts of each chip platform can be reused in later releases, or brought forward and tested alongside current technologies, such as PowerVia. This method of powering a chip from the back of the wafer to free up space for logic circuits on the front is designed for future releases but has been packaged with other components on a trial basis.
Along with PowerVia, Intel is also gambling on its first new transistor architecture since 2011, called “gate all around”, designed to reduce the leakage of electricity as transistors move towards sub-nanometre scales to regain its edge. “Both of those innovations are essential to us getting back to leadership,” says Kelleher.
With other manufacturers also planning to adopt new transistor architecture, this presents an opportunity to shake up industry leadership, says Shih, as companies vie to be first to perfect the technology. However, there is not yet a sign that this will play to Intel’s advantage.
Intel is counting on the changes Kelleher is making to race through five new process “nodes” in only four years, something the company says will enable it to regain a manufacturing lead by 2025. “Overall, we’re doing very well,” says Kelleher after two years in.
With one release completed and four still to come in quick succession, followed by the need to scale up production and embed the new technologies in future generations of products, most of the hard work lies ahead. According to Rasgon at Bernstein, it will take another five years to tell whether Intel can become globally competitive again.
To support its new chip designs, Intel has announced a spate of giant new manufacturing plants, known as fabs, with the economies of scale needed to justify the capital-intensive processes.
There are two fabs planned outside Phoenix, two more in Ohio and a new €17bn mega plant in Germany that represents the country’s biggest investment since the second world war.
The cost for the first phases of these developments has already reached around $60bn, and the German government is pushing Intel to expand its plans in exchange for the higher subsidies the company is seeking.
Under the Chips Act, Intel could receive up to $12bn to support its new US facilities, with extra subsidies for an advanced chip packaging plant in New Mexico and further tax credits.
Throwing so much support behind the company, however, may not be the quickest way for the US to become self-sufficient in chipmaking. In a report two years ago, Georgetown University’s Center for Security and Emerging Technology (CSET) estimated that around 55 per cent of the advanced chips consumed in the US were made in TSMC’s fabs, with a further 25 per cent coming from Intel and the rest from Samsung.
The most effective use of the Chips Act subsidies geared to advanced chipmaking, according to CSET, would be to apportion them based on market shares, in effect leaving Intel with only half the money it is seeking.
However, Intel’s greater willingness to pour money into new US manufacturing has put it in pole position to receive a much bigger share. Last year, TSMC expanded its plans for a new fab under construction in Arizona, but output would be “a drop in the bucket” compared with the giant fabs the company runs in Taiwan, says Shih.
That has left Intel as the US standard-bearer in chip manufacturing “on a de facto basis”, says Chuck Wessner, a senior adviser to the Center for Strategic and International Studies in Washington. “It’s not a government policy,” he adds, but the company’s eagerness to invest significantly in the US makes it the only realistic option.
This message is one Intel itself has been driving home in Washington. The main goals set by the commerce department — to boost domestic chipmaking in order to increase economic and national security — leaves the country with no choice but to back Intel as “America’s champion, which has been investing heavily for decades,” says Al Thompson, the company’s head of US government relations.
Yet even if Intel succeeds in its manufacturing plans, there is no guarantee it will have enough business to fill its giant new fabs, or to operate them profitably.
Sales of PCs — still Intel’s main market — have fallen back after a pandemic-era boom, and many Wall Street analysts believe the company’s predictions about the market in the long term are unrealistic. To make matters worse, Apple recently dropped Intel in its Macs in favour of its own silicon chip designs, while AMD has taken advantage of TSMC’s superior manufacturing to claim an estimated 35 per cent of the PC market.
“Thirty per cent of their [PC] market has vanished,” Rasgon says of Intel, once synonymous with the PC industry. But now, even some of its biggest customers seem ready to move on.
“I think it’s important for Intel to succeed, and they’ve been a great partner,” says Michael Dell, chief executive of Dell Technologies. “But if they don’t succeed, we’ll use something else.” That could include new chip designs not based on the core chip architecture found in Intel’s main products, he adds. “Competition’s a good thing.”
Meanwhile, in servers, Intel processors face a barrage of competition, as cloud computing giants such as Google and Amazon have turned to designing their own chips. The data-intensive work of training AI systems has also boosted demand for different classes of chips. Wall Street’s belief that Nvidia will be the main winner from the AI race has lifted its shares by 90 per cent this year and added $360bn to its value — or more than two and a half times Intel’s entire market capitalisation.
One response from Intel has been to diversify into new chip architectures to compete. Another has been to open up its manufacturing to other chip companies, in the hopes of bringing in enough outside business to support the huge investments it needs to make.
Potential customers for this new chip foundry business have cautiously welcomed the move. Cristiano Amon, chief executive of mobile chip company Qualcomm, says it will be “a good thing” for the US if Intel succeeds, and that it will give Qualcomm another choice of manufacturer to turn to. Whether or not the Intel plan will work, says Amon, is “a tricky question to answer”, adding: “We haven’t committed a product yet.”
For Intel, competing with TSMC will mean learning a new way of doing business, including persuading customers that Intel will not put its own interests first if capacity is ever in short supply. It will also mean matching a fearsomely efficient rival, despite facing a likely cost disadvantage from being based in the US.
Intel has said that from early next year it will report the results of its manufacturing operations separately — even though, for now, the only customer will be Intel itself. The company’s executives hope the division will instil greater discipline throughout the company, forcing its manufacturing arm to show it can stand on its own feet, while its chip design business has to match the best of the “fabless” companies, such as Nvidia.
One day, they concede, that could even lead to a full break-up of the company — something some investors pressed for when Pat Gelsinger returned to head Intel in 2021. But it is likely to take years for Intel to win over enough big customers willing to bet on its advanced new fabs, making such a break a distant prospect.
For politicians in Washington, where reducing the country’s dependence on foreign-made chips has become an urgent matter, such long timescales will be a challenge.
“It took Intel 10 years to lose its lead, and the US giving up its chip manufacturing has taken 30 years,” says Shih at Harvard Business School. “Don’t expect results by the next election cycle.”
4. Meanwhile, China’s growing restrictions on the export of critical minerals are raising the cost of the green energy transition, the OECD said as reported in FT.
Beijing has imposed more export controls than any other country, with over 13,000 new limits on raw materials by 2020, a fivefold increase in a decade. Lithium, cobalt, and manganese — vital for producing electric cars and renewable energy — were particularly affected.
India, Argentina, Russia, Vietnam, and Kazakhstan placed the next-most limits on their exports. Western countries are increasingly dependent on imports from emerging markets to electrify their economies, and the surging demand is affecting raw material prices even without export controls limiting the supply.
5.Finally, The Economist has chosen to call the new Cold War the Super Power Split and has posed the question How to Survive a Super Power split? Another Long Read for the weekend
Caught between America, China and Russia, many countries are determined not to pick sides. As the American-led order in place since 1945 fragments and economic decoupling accelerates, they seek deals across divides. This transactional approach is reshaping geopolitics.
One way of capturing the sheer scale and heft of these non-aligned powers is through a Russian lens. Our sister organisation, EIU, has analysed countries based on their economic and military ties to Moscow, their diplomatic stances including votes at the un and whether they support and implement sanctions. Although 52 countries comprising 15% of the global population—the West and its friends—lambast and punish Russia’s actions, and just 12 countries laud Russia, some 127 states are categorised as not being clearly in either camp (see map).
To get a handle on what non-alignment really means The Economist has also looked at a narrower panel of the 25 biggest economies that have sat on the fence on the Ukraine war, or wish to remain non-aligned in the Sino-American confrontation, or both. The members of this group—call them the transactional 25 (t25)—are hugely varied in terms of wealth and political systems, and include giant India and tiny Qatar. Yet they have some common ground. They are brutally pragmatic and have collectively become more powerful. Today they represent 45% of the world’s population and their share of global GDP has risen from 11% in 1992 to 18% in 2023, more than the eu’s. Their strategy of neutrality involves big risks and opportunities. Whether they succeed will influence the world order for decades. And needless to say, both America and China will work to win them over.
In the 20th century non-alignment meant different things to different countries at different times. At conferences in Bandung, Indonesia in 1955 and Belgrade, Yugoslavia in 1961, leaders presented a “third world” apart from the West and the Soviet bloc. From the late 1960s these countries increasingly focused on economic inequality between the “global south” (a less loaded term for the third world) and the industrial north. A formal institution, the Non-Aligned Movement, was joined by nearly every African, Asian and Latin American state. With the end of the cold war it became, in the words of an Indian academic, “a moribund organisation in need of a decent burial”.
Today, non-aligned countries are not defined by their membership of an institution, but rather by their characteristics and behaviour. These middle powers are pragmatic and opportunistic. In a recent book Jorge Heine, a former Chilean diplomat, contends that in the 20th century countries often passively drifted into one or other of the superpowers’ orbits. Today there is more “active” evaluation of the best means to achieve particular ends, he says. Some call it “minilateralism” (as opposed to multilateralism)—the targeted use of discrete alliances or groupings, rather than lumping your lot in with one bloc.
Non-aligned countries also usually think Western leaders are hypocrites. Some $170bn in aid was pledged to Ukraine in the first year of the war—equivalent to about 90% of spending on all global aid in 2021 by the OECD’s Development Assistance Committee, a group of 31 Western donors. To the West, such generosity shows solidarity with a fellow democracy; to others it shows that rich countries cough up if it serves their interests. “Europe has to grow out of the mindset that Europe’s problems are the world’s problems, but the world’s problems are not Europe’s problems,” declared Subrahmanyam Jaishankar, India’s foreign minister, last year.
Such stances are broadly in line with public opinion. A report by Cambridge University last year found that in liberal democracies 75% hold a negative view of China, and 87% do of Russia. But the picture is almost the reverse among the 6bn people who live elsewhere. A gap is opening up between how the West sees the world and how the rest sees it. In a poll published earlier this year by the European Council on Foreign Relations, a think-tank, a plurality of Indians (48%) and most Turks (51%) said the future world order will be defined by multipolarity or non-Western dominance. Just 37% of Americans, 31% of people in eu states and 29% of Britons agreed. The West thinks it is watching a sequel of the cold war; the rest of the world sees an entirely new film.
So who makes up the t25? The diverse group encompasses some of the world’s most populous countries and two of its largest democracies, India and Indonesia, alongside Vietnam, Saudi Arabia and Egypt, which are all run by autocrats of various flavours. Large wealth disparities exist, too. In Saudi Arabia GDP per person is more than $27,000, on a par with some European countries, while in Pakistan it still lingers around just $1,600.
As globalisation has spread, the trade pattern of the t25 has become multipolar. Some 43% of merchandise trade is with the Western bloc, 19% with the China-Russia bloc and 30% with countries in neither of those camps (see chart). Perhaps unsurprisingly given its location, 77% of Mexico’s total trade occurs with the West; over 60% of Israel’s and Algeria’s trade also does. More than a third of Chile’s is with China, a higher share than any other t25 country (but 40% of its trade involves the West). More than half of Argentina’s trade, and almost half of India’s, is with other non-aligned countries.
Arms imports also show a complex mesh of loyalties. India hedges its bets. Between 2018 and 2022 its main supplier was Russia, which provided 45% of its arms, but it got another 29% from Europe and is likely to seek more self-reliance, with help from America. India’s rival China, which supplies its arch-enemy, Pakistan, is out of the question. Israel, Morocco, Saudi Arabia and South Africa look instead to America for the vast majority of their arms imports.
There is no coherent governing body that represents non-aligned countries and their interests. None is expected to emerge. Instead a variety of disparate organisations, such as the G20, provide platforms of varying effectiveness for the major non-aligned countries. The BRICS group of countries—Brazil, Russia, India, China and South Africa—is a forum for middle powers that wants to expand: it is discussing whether to let Iran and Saudi Arabia join. At un climate talks a broader group of more than 130 countries, including China, has negotiated together.
Despite their differences, the non-aligned countries share a common aim: to make expedient deals in a fluid environment. For two decades many were able to simultaneously build relations with the West, China and Russia. No longer. The West is imposing sanctions on Russia and restricting Chinese access to technology.
For many this is a grave threat. Sanctions on Russia saw energy and food prices soar globally, prompting a backlash across the non-Western world. More recently Janet Yellen, America’s treasury secretary, has encouraged American companies to move their supply chains into friendly states. Investment shifts are under way (see chart). Beijing and Moscow, meanwhile, are drawing closer together. New research by the IMF notes that since 2018 geopolitical alignment, measured by similarity in un voting patterns, has become ever more important in determining the location of foreign direct investment. Under the IMF’s scenarios for fractured trade, the impact in emerging markets could be more than twice as bad as in advanced ones.
But many in the non-aligned world bet that they can win from economic decoupling and political fragmentation, by hedging their relations between the big powers and by influencing other countries themselves. To understand this transactional strategy, look at the approach of some of the big countries caught in the middle. Brazil is a good case study. It opposes what Mauro Vieira, foreign minister, calls “automatic alignments”. Luiz Inácio Lula da Silva, who began his second stint as Brazil’s president in January, sees President Joe Biden as an ally on climate change; at their meeting in Washington, DC, in February they re-established joint environmental institutions abandoned under Jair Bolsonaro, Lula’s predecessor. America classes Brazil as a “major non-NATO ally”, a legal status that entitles enhanced co-operation with America’s armed forces.
Yet Brazil is also hedging between the superpowers. Like others in its region, it has declined Western proposals to give old Russian-made equipment to Ukraine in exchange for new arms. Lula’s arrival in Beijing on April 14th will underscore China’s economic importance. Trade between Brazil and China was nearly $153bn in 2022, a 37-fold increase in two decades. Partly this reflects how Brazil took advantage of tit-for-tat us-China tariffs to increase agricultural exports to China at America’s expense.
Brazil is also making forays of its own. Lula will soon visit Africa to revive Brazil’s influence there. During his first stint in office, trade with Africa rose from $6bn in 2003 to $25.6bn in 2012, and South Africa was welcomed into the BRICS bloc. Then Lula’s predecessor made no visits to Africa. Lula evidently thinks it worthwhile to renew the effort.
India’s fear of China has pushed it closer to the West in some respects. In March the prime minister of Japan, which like India, America and Australia, belongs to the “Quad”, an Indo-Pacific security forum, visited Delhi in a landmark visit. In the 2021-22 financial year India’s trade with America overtook that with China. Yet India still purchases weapons and cheap oil from Russia and is unlikely to break its longstanding ties unless Vladimir Putin’s regime were to use nuclear weapons.
Like Brazil, India is asserting itself more abroad: only China imports and exports more with sub-Saharan Africa. The average annual stock of fdi from India was $0.8bn in 2004 to 2008 (less than half of Sweden’s) but $31bn a decade later (more than Germany’s and Japan’s combined). Last month India hosted representatives from 31 African countries for war games. India promises to use its chair of the G20 this year to be the “voice of the global south”.
Turkey also wants more clout across the global south. It has security agreements with 30 African states and its defence exports to Africa rose more than five-fold from 2020 to 2021. Advisers to Turkey’s president say the “New Turkey” can select its partners. That may explain its ostensible neutrality over the war in Ukraine, which Turkey has used to leverage its ties to Russia. Turkish exports to Russia reached $7.6bn in 2022, a 45% increase on the previous year.
Saudi Arabia is reducing its reliance on its historical ally, America, by tilting towards China, which is now the kingdom’s largest trading partner. Consider decisions this month and in October by the Organisation of the Petroleum Exporting Countries, which Saudi Arabia dominates, to slash oil production. Last month Saudi Arabia signed a Chinese-brokered deal with Iran and joined the Shanghai Co-operation Organisation, a Eurasian talking shop. China says it wants to establish a free-trade deal with the Gulf “as soon as possible”.
Gulf countries’ relations with Africa were once confined to energy, agriculture and the politics of the Horn of Africa. Today Saudi Arabia and the United Arab Emirates hunt for minerals deals; dp World, a Dubai-based ports operator, is emerging as a critical logistics firm on the continent; and Qatar is playing novel diplomatic roles. Last month it was involved in brokering the release of Paul Rusesabagina, a jailed Rwandan dissident (and the inspiration for the film “Hotel Rwanda”).
African countries have long looked to both superpowers. The West has generally been their preferred source of “software”: support for schooling, health and, should a government want it, human rights. China offers “hardware”: bridges, roads, ports—and the loans to build them. Between 2007 and 2020 America’s main development agency lent less than a tenth of the total of China’s two major development banks ($1.9bn v $23bn) for sub-Saharan African infrastructure projects.
In some parts of Africa the West’s promises to ensure security have rarely seemed as hollow. “Americans need somewhere for their troops and agents to sleep. But the security relationship does nothing for development,” explains a former adviser to an African president. “That’s why we need China.” In August the last French troops left Mali after a nine-year deployment; the Wagner Group, comprising Russian mercenaries, now helps prop up the ruling junta.
The non-aligned countries want to avoid taking sides. But the big powers, America and China, are keen to draw them into their orbit. Beijing sees asserting leadership of the global south as a way of bolstering its resistance to American pressure. It positions itself as a model for others within a broad family of developing countries. It draws a contrast with the West, which it says prefers smaller clubs (like the G7). “China shows up where and when the West will not,” says Yemi Osinbajo, Nigeria’s outgoing vice-president.
China is the main trading partner of around 120 countries and the lender of first and last resort for many. Between 2007 and 2020 it provided more infrastructure financing in sub-Saharan Africa than the next eight lenders combined. It will be pivotal to resolving sovereign-debt crises. Analysis of 73 developing countries by the IMF notes that in 2006 China held just 2% of this group’s external debts, with the mostly Western “Paris club” group of creditors accounting for 28%. By 2020 the respective shares were 18% and 10%.
Those in the West have reason to roll their eyes. China’s “win-win” rhetoric masks its ruthlessness. “Banking on Beijing” (2022), by Bradley Parks of AidData, a research outfit, and co-authors, shows how China uses its economic tools for political ends. It often skews its funding towards incumbent leaders’ home districts—and is more likely than the West to lend to corrupt and autocratic countries. AidData also finds that a 10% increase in voting similarity with Beijing at the un is associated with an increase in Chinese projects in that country. Chinese loans come with unusually strict clauses on confidentiality and collateral. But Chinese development projects are associated with boosts to GDP per person, notes Mr Parks.
In the face of China’s efforts, America and its allies are trying to recalibrate their message to the non-aligned world. America understands that other countries’ consent bestows legitimacy on the international order it leads. “Countries don’t want to choose, and we don’t want them to,” Jake Sullivan, Mr Biden’s national security adviser, told the Washington Post earlier this year. America is pursuing diplomacy in places it has neglected. Kamala Harris, America’s vice-president, Ms Yellen and Antony Blinken, its secretary of state, have all visited Africa in 2023. Mr Biden will soon follow.
America has also bolstered security partnerships with influential non-aligned countries. In November Lloyd Austin, its defence secretary, met his Indonesian counterpart for the fourth time; in January American and Indian officials agreed to deepen co-operation on cutting-edge defence technologies. In total America maintains 88 defence “partnerships” (excluding formal alliances such as its one with nato), though some are limited in scope.
Though America and the eu have in recent years launched rival schemes to the bri, the perception remains that, if you want infrastructure that can help transform your economy, your first call is to Beijing. After Ms Harris released a soundtrack featuring African artists to accompany her recent visit to the continent, one senior African official noted, dryly, that Chinese visitors bring loans and engineers while Americans bring playlists.
The Biden administration is widely seen as embracing a two-tier foreign policy: first come relations with its core democratic allies in Europe and Asia (which it hopes might one day include India)—and then those with creaking global institutions. These mediate meet the needs of a broader group of countries, including most non-aligned ones, whether on development, debt relief, security or finance.
That presents three challenges. First, Western unity must hold. Yet that is not a given. During his recent visit to China Emmanuel Macron, France’s president, said that Europe’s states should not become “followers” of American policy on Taiwan, nor “adapt to the American rhythm”.
The second is that China can undermine global institutions by, for instance, opting for bilateral debt relief rather than fully participating in co-ordinated efforts. Chinese creditors’ obstinacy at the IMF is hampering what flexibility it can offer to countries struggling with debt.
The final challenge concerns the mistrust of the West that is fed by its broken promises. Take climate finance, for example. In 2009 rich countries said they would channel $100bn to poorer ones per year by 2020; the annual total has never been higher than $85bn.
By drawing on their liberal values and shared history, America and its allies were able to rally behind Ukraine after Russia’s invasion. They have shown newfound resolve against authoritarian China, too. The risk is that this coming together deepens the estrangement of the global south from the international order. It would be a tragic result if, in uniting the West, America alienates the rest.■